Captain's Quarters Blog

« How Big Will The Walkout Get? | Main | When Gas Meets Hot Air »

May 1, 2006
Sino-Saudi Economic Ties Strengthening

An editorial by a Saudi economics professor in today's Arab News points out the growing ties between the oil-rich Middle Eastern nation and the growing economic behemoth of the East, mainland China. Dr. Mohamed Ramady argues that while enetrgy will provide the Saudi entree to Beijing, the potential for Sino-Saudi relations goes much farther (via Newsbeat1):

Between the pomp and ceremony of state visits and senior level meetings of Saudi and Chinese officials, there is indeed much to be pleased about concerning the blossoming relations between the world’s major oil producer, Saudi Arabia, and the emerging manufacturing superpower, China. It is no coincidence that President Hu Jintao of China came to Saudi Arabia straight after his state visit to the US in late April. The earlier state visit to China by Custodian of the Two Holy Mosques King Abdullah had already set the stage for an emerging economic bond between the two nations.

Oil and energy issues have moved to the top of China’s agenda as it seeks to assert its role as a full great economic power, and assure itself of reliable energy partners to feed its unmatched economic growth.

But it is not on the energy front alone that Saudi-Sino relations are being built. During President Hu’s visit, a number of accords were signed in security, defense, health, trade and youth matters. There were discussions about establishing a Chinese strategic oil reserve in southeast China with Saudi supplies, which again makes eminent sense given the possibility of a breakdown of Iranian oil supplies to China. In other major developments, Saudi Aramco and Sinopec, China’s top refiner and petrochemical producer, signed memorandums of understanding to increase trade cooperation as well as reviewing Sinopec’s gas exploration activities in the Saudi Al-Rub Al-Khali (Empty Quarter). At the same time, Saudi Basic Industries Cop. (SABIC) discussed with their Chinese counterparts plans to establish a $9.3 billion refinery and petrochemical project in northeastern China. It is now obvious to the major petrochemical players of the world that, with both Saudi Arabia and China having acceded to the WTO, the only viable competitive route open to multinational companies is to enter Saudi Arabia as a major petrochemical producer. In this way they can ensure competitive supplies to their domestic markets, as well as feed China’s growing petrochemical needs from their Saudi Arabia operations.

However, it is the increasing economic and investment ties at the private sector level that is gathering pace between the two countries. The private sectors of Saudi Arabia and China have come of age. The Chinese, while operating under a benign centralized economy, to all intents and purposes are working on a free market basis. In mid-April, the Chinese government has started the legal process of establishing the conditions for private oil companies to engage in oil exploration, which until now has been monopolized by the three giant state owned companies — PetroChina Co. Ltd., the offshore oil producer CNOOC Ltd. and Sinopec. The Saudi private sector has now matured well enough to be able to source strategic investment partners of choice away from more traditional trading partners in the Western world. The opening up of such strategic sectors of the Chinese economy should provide opportunities for Saudi private sector companies to establish advanced technology, primarily offshore, oil exploration joint venture companies.

Ideally, this would work to the benefit of both nations and to the promotion of free enterprise. The cash-rich Saudis can invest some of their money away from their own oil fields and into Chinese operations. The Chinese can move farther down the path of free enterprise and away from central planning and control, allowing more of their citizens to create wealth and put pressure on Beijing for more economic and property rights. That could move China towards greater freedom, although it would take decades for that kind of evolutionary change to occur. The Saudi investments could help China find more of its own oil, putting less pressure on world markets -- and perhaps make China's reliance on Iran less of a problem.

The Saudi business contacts will not restrict themselves to oil, according to Ramady. He states that Saudi Arabia has untapped wealth in mining, an economic potential probably overlooked due to their focus on pumping oil. The Saudis hope to eventually garner Chinese interest in their mineral production. This would give the Saudis a fallback position if the West succeeds in either developing practical alternative energy production or start drilling their own oil, especially the US.

The Eastern turn of Saudi Arabia warrants cautious oversight, however. Saudi Arabia is still a nation built on radical Islam, and although its ruling class has been until now pro-Western, that appears to be changing. The Saudis may prefer to do business with the non-judgmental (to put it mildly) Chinese, who appear to have no problem funding genocidists in Southwest Asia and Africa. We need to ensure that these new economic ties do not encourage the Saudis to fling off the West and adopt the querolous tones of the Iranian mullahcracy.

UPDATE: Not everyone likes the "emerging Asian dragon":

Militants in Nigeria's volatile oil-producing region detonated a car bomb late Saturday and issued a warning that investors and officials from China would be "treated as thieves" and targeted in future attacks.

The threat came as Chinese President Hu Jintao returned home from a week-long tour of Africa in which he reached a series of deals securing access to oil and other resources to meet the needs of China's booming economy. On Wednesday, Hu and Nigerian President Olusegun Obasanjo signed several major business deals, including one that offers China four oil exploration licenses, the Associated Press reported. ...

In a second e-mail, the spokesman, who uses the pseudonym Jomo Gbomo, specifically criticized the Chinese, who last year took a $2.2 billion stake in an oil field in the Niger Delta. Nigeria is a major oil exporter and the fifth-largest supplier of oil to the United States.

Welcome to the free market. Lunatics, unfortunately, come with the territory.

Sphere It Digg! View blog reactions
Posted by Ed Morrissey at May 1, 2006 6:11 AM

Trackback Pings

TrackBack URL for this entry is


Design & Skinning by:
m2 web studios

blog advertising


Proud Ex-Pat Member of the Bear Flag League!